Citi and Fortis Investments Launch Second Generation Managed Equity Programme

Citi and Fortis Investments have launched a second-generation managed equity programme. The programme includes a variety of equity tranche-linked notes, each of which offer different risk/return characteristics, which the companies claim has a projected internal rate of return of up to 21%. Over the last year, the relative value of the equity tranche has increased within the capital structure. The rise in idiosyncratic risk assumed by market participants has boosted the value of this part of the capital structure. To access this value, the new programme offers a range of investment solutions for many different risks/return profiles. Over the past year, investor interest in equity tranches has increased with the increase in shareholder friendly activity. Many market participants, however, expect the current benign credit default environment to continue, and the programme allows customers with this view to partner with Fortis Investments. The equity tranche isolates default risk and enables investors to focus on pure default positions. The initial portfolio is composed of 80 equally-weighted credits. The aim behind the product is to defend the carry typically provided by the equity tranche by managing the portfolio against defaults and credit events. The seven and 10-year fund-linked transaction is available in either funded or unfunded format. The first pricing will be in mid-April 2007.


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